Energy Investing: What Is Energy?

It’s important to define energy, because it’s important to know the nature and scope of a market you’ll be putting your hard-earned dollars into. The Merriam-Webster Dictionary definition of energy breaks it down into several parts.

Energy

Has a dynamic quality

Is a vigorous exertion of power

Is a fundamental entity of nature that is transferred between parts of a system in the production of physical change within the system, and is usually regarded as the capacity for doing work

Is usable power (such as heat or electricity) or the resources for producing such power

For investment purposes, a combination of the third and fourth definitions is apt. To put a finer point on it, the two types of energy are primary energy and secondary energy.

For an energy source to be primary, it must naturally exist in nature. Primary energy sources can’t be man-made. Primary energy includes

Crude oil: The most widely traded commodity on the planet, oil fulfills one-third of the world’s energy needs. From exploration and drilling to refining and distribution, oil presents myriad investment opportunities.

Natural gas: This was once considered a waste fuel, as companies routinely burned it off just to get rid of it. Today, thanks to new drilling technologies and concerns about oil depletion, natural gas is being looked to as the fossil fuel of the future.

Coal: No other fuel provides more electricity than coal. Forecasts show that coal will surpass oil as the world’s top fuel source by 2022. It’s cheap and abundant, but it’s also dirty.

Uranium: Many countries are looking to provide emission-free electricity with nuclear reactors, especially in Asia. China alone has plans to build more than 150 new reactors. But even though nuclear has been proven safer than other fuels, high-profile incidents make nuclear the most contentious of all energy sources.

Solar energy: In a single second, the sun produces enough energy to meet current global needs for 500,000 years. The world just hasn’t quite figured out how to efficiently harvest it yet. But the process of doing so is now big business.

Wind energy: Already cheaper than coal and nuclear for electricity production in certain areas, wind has attracted the attention of countries and companies worldwide. Wind is a very young market with much room to grow; the United States, for example, still hasn’t erected its first offshore wind farm.

Geothermal energy: The only renewable resource capable of providing constant energy, geothermal has been used as an energy source for more than a century.

Biomass (organic material): This can be burned to create electricity or processed into liquid fuels for transportation. Though it has been criticized for displacing food from hungry mouths, plant-based fuel is finding success in various locales.

Some sources of primary energy are transformed into more usable forms of energy. Electricity, for example, is a form of secondary energy because it’s produced from primary sources. Gasoline is also a secondary energy source because it’s refined from oil.

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